GST now likely on movies, music from foreign sites

If you download a movie or music item from a foreign site, such as A pp lei Tunes, your bill will rise due to the proposed goods and services tax, if the revised draft model Bill becomes law. So, no relief from the service tax, which anyway would be imposed on foreign firms from December 1 even under the existing system.

If you download a movie or some music from a site based abroad, such as the iTunes Store, your bill will rise due to the proposed goods and services tax (GST), if the revised draft model Bill becomes law.

So, there will not be any relief from the service tax which anyway would be imposed on foreign companies for these services from December 1 even under the existing system. Earlier this month, the Central Board of Excise and Customs had said: “The exemption to such services provided in India by providers located in foreign territory is being withdrawn with effect from December 1.” Thus, cross-border business to the consumer OIDAR (online information and database access or retrieval services) provided by a foreign service provider to a person in India will become taxable.

This tax will continue under the proposed GST under the changed place of supply rules in the revised draft as compared to the first one, said Pratik Jain, leader, indirect tax at consultancy PwC.

The services rates are yet to be officially specified. However, it is widely expected that the service tax rate under GST would be either 12 per cent or 18 per cent.

Place of supply would, under the proposed GST change, be taken as India in such downloads. For this purpose, foreign-based companies will have to register here. "Every person supplying online information and database access or retrieval services from a place outside India to a person in India" will have to be registered under GST, says the revised model Bill.

Domestic companies already incur this service tax. If a company were located outside India, it need not pay this. Only for business to business transactions are foreign companies liable to pay this, even if the recipient is in India, with some exceptions.

However, there is GST relief proposed from free offers given by companies to consumers. For instance, if you get one shirt free for buying two, GST will be imposed only on two shirts. In the earlier draft, even freebies were to come under the tax.

The place of supply rules also change the norms for lease line companies such as VSNL. Now, if the resident company is providing these services to a foreign-based entity, even if the equipment is installed in India, the company need not pay GST.